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Worldwide institutional investors' average target allocation to real estate is expected to reach 10.3% in 2017, up from 9.9% this year and 9.5% in 2015, according to Cornell University's Baker Program in Real Estate and Hodes Weill & Associates' fourth annual real estate survey released Tuesday.

“Over the four years, we've seen a steady climb in allocations and no sign that momentum will subside any time soon,” said Doug Weill, managing partner, in an interview.

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However, institutional investors surveyed indicated increased nervousness due to a spectrum of factors, including geopolitical unrest, increased risk around the world, possible interest rate increases and the economic recovery reaching its sunset years, Mr. Weill said.

This is resulting in investors investing more defensively, he said.

Investors have not stopped investing with an average 8.9% of their portfolios invested in real estate in 2016, up from 8.5% in 2015. However, surveyed investors signaled their intention to invest more of their real estate allocations in defensive strategies including private credit, corporate net leases and cyclical or niche asset classes such as student housing, health care and self-storage.

Moreover, institutional investors overall are seeking to reduce the leverage in their portfolios and showing a growing concern with factors such as the durability of the properties' income streams and tenant credit quality, Mr. Weill said.

At the same time, there is a shift toward higher-returning strategies, with value-added strategies more in favor, followed by opportunistic, even as investors look to be more defensive, he added.

Over the past 12 months, 86% of institutional investors indicated they intended to invest in value-added real estate in 2016, 70% expect to invest in opportunistic real estate and 66% indicated they would be investing in core.

Investors have an average target return of 8.4% for real estate, up slightly from 8.2% in 2015. The actual return was 10.8% in 2015, down from 11.7% in 2014 and equal to the 10.8% return in 2013. The four-year average annualized actual return was 10.7% in 2016.

Some 228 institutional investors participated in the survey, which was conducted from May to September.